Greetings and welcome to the Varex Imaging Corporation's Second Quarter 2018 Fiscal Year Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Howard Goldman, Director of Investor Relations. Thank you, Mr. Goldman. You may begin.

Good afternoon and welcome. With me today are Sunny Sanyal, our President and CEO; and Clarence Verhoef, our CFO. To simplify our discussion, unless otherwise stated, all references to the quarter are fiscal quarters. Quarterly comparisons are for the second quarter of fiscal year 2018 versus the second quarter of fiscal year 2017, unless stated otherwise. In addition, we supplement our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles, or GAAP, with the use of adjusted or non-GAAP financial measures of certain elements of financial performance. These adjusted measures are not presented in accordance with, nor are they a substitute for, GAAP financial measures. These adjusted measures include adjusted gross margin, adjusted operating margin, adjusted operating earnings margin, adjusted net earnings and adjusted net earnings per diluted share. We provided a reconciliation of each adjusted financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website. We are not able to provide without unreasonable effort a reconciliation of adjusted net earnings to the corresponding GAAP measures on a forward-looking basis due to the potential significant variability and limited visibility of the excluded items discussed. Please be advised that this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our use of words and phrases such as expect, outlook, anticipate, will, could, believe, estimate, guidance and other similar expressions are intended to identify those statements, which represent our current judgment on future performance or other future matters. While we believe them to be reasonable based on information currently available to us, these are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks relating to our business are described in our filings with the SEC. The information in this discussion contains speaks as of today's date and we assume no obligation to update or revise the forward-looking statements in this discussions because of the new information, future events or otherwise. And now, I'll turn the call over to Sunny.

Good afternoon and welcome. I'm pleased report a strong second quarter with significant revenue growth up 30% from the prior year quarter. For comparison purposes, if revenues from the acquired imaging business had been included in the prior quarter, we would have grown by 5% year-over-year. This increase was primarily driven by a higher sales of our products for the CT, industrial and oncology markets, partially offsetting this was a decline in product sales for the radiographic market. On a trailing 12 month basis, the strongest markets for our products were oncology, mammography and industrial. CT grew consistent with the global market rate, while radiographic, digital detectors declined. Our products for the oncology market have performed well over the past year, due to what we believe has been an overall market growth for radiation therapy systems including expansion into emerging markets. Looking at individual product lines, we experienced strong growth in the second quarter in X-ray sources and connect and control, digital detectors are on plan, and software was down slightly. The acquired imaging business continued to exhibit very good performance and exceeded its revenue plan for the second quarter. Revenues from dental 3D imaging detectors returned to historical levels and increased 50% over the first quarter of the current fiscal year. In addition, most of the linear accelerators that were delayed in the first quarter were shipped in the second quarter. R&D investment in the second quarter was 11% of revenues and above our target range. This is primarily due to the costs of CT prototype materials for Chinese OEMs and the acceleration of certain internal innovation projects. So in view of this last point, I'd like to take this opportunity to clarify our approach to R&D. Innovation is the lifeblood of our company and one of the key…

Thanks Sunny and hello everyone. I'm going to focus my discussion on Q2 results and the year-to-date financials can be found in our press release. I would summarize Q2 as great performance on the top line with some softness in the gross margin rates, while the operating expenses in the lower tax rate were in line with our expectation. Additionally, we had higher than expected income from investments in privately held companies. Including the results of the acquisition, our second quarter revenues were up 30% to $201 million. As a point of reference, the acquired imaging business had revenues of $36 million in the year ago quarter, which was prior to the closing of the acquisition. Medical segment revenues increased 26% in the second quarter to $159 million. Revenues from sources were up high single digits, connect and control was up by solid double digits, while software declined slightly. Digital detector revenues grew not only with the addition of the acquired imaging business but also from good demand in the oncology market. Industrial segment revenues for the second quarter increased 47% to $43 million, almost entirely due to the addition of the acquired imaging business. For the second quarter, our gross margin was 35% compared to 37% in the prior year quarter. The adjusted gross margin was 36% compared to 38% a year ago. This quarter, the product mix was favorable for detectors and connect and control, but was offset by an unfavorable product mix for X-ray tubes. Gross margins for the industrial segment were lower due to higher manufacturing cost and higher deferred revenues. Based on the lower margins for the first half, we now expect the full year adjusted gross margin rate to be approximately 37.5%. R&D expenses were $22 million or 11% of revenues in the quarter,…

Thank you. At this time, we will be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of Anthony Petrone of Jefferies. Please proceed with your question.

Anthony, are you on mute?

Apologies, I was on mute. Apologies for that. Hi Sunny. Hi Clarence.

Hi.

I'll being with maybe Sunny to circle back on China CT, a couple questions there and them a few questions on guidance and the R&D investment. So on China CT, Sunny you know another now order, it sounds like it's a new customer, so maybe just to recap on you know how many customers within China you have on the CT side and this newest order you announced today, is it similar to the prior orders in the sense that it's mostly CT tubes, so just the makeup of that order? And then lastly just, is it a three year order or is it was the case with the prior orders that you spoke about last quarter?

Yeah. So Anthony, as we discussed in the prior calls, we've been working with a whole slate of OEM's in China who want to be in the CT business and bring CT systems to market. And there's, as we said there's 10 to 12 of them. So we have been systematically working with them and there's - according to their development cycles, when they get to a point where they're ready to start their clinical trials and proper get ready to go to market, that's when we engage in the process of signing pricing agreements and multi-year purchase agreements with them. So this fifth one that I just mentioned - the one that I mentioned today was the fifth in the list such customers and there are many more that we're working with that which over the years hopefully will bring product to market and we will sign them up as well.

And in terms of…

Yeah, the 50 million that I mentioned is a multi-year, is a three year agreement and it consists of actually of several different products in there. We didn't break it out into how much of that with CT versus detectors other products, but this was specific to China, we did about $50 million worth of new products where we signed multi-year agreements in China.

Okay, that's helpful. And then you know just on the guidance that to touch on that a bit, so the top lines reiterated strong second quarter. You know couple of questions, maybe just on the top line, you know how many linear accelerator orders you know are still in the pipeline that you think can hit this year? And then you know maybe walk us through the R&D investments a bit you know obviously taken up here a little bit and there is a multi-year investment on the R&D side. So is the R&D that you're announcing today, is that really geared toward you know funnel activity or is this sort of way we could look at as pipeline activity in the sense that you're already working on developing prototypes for customers.

So - Anthony, this is Clarence. I'll answer the first one and then sunny can probably give you a little more color on the R&D pipeline. Relative to the linear accelerator business, I guess the first comment is that we did have a little bit of some order shift or some delivery shift from Q1 to Q2, most of that happened in the second quarter and so I was to get that back on track. We don't give specific numbers on quantities of linear accelerators that we're shipping by quarter, but - and the challenge always in this business is it's got a little bit of a lumpiness to it as such. And - but the outlook that we have for the balance of the year is, it looks good, it has picked up a little bit, I'd say we anticipate to see you know a moderate level of growth in that space now not you know maybe low to mid single digit kind of number but it's somewhere in that kind of a range.

And then on the R&D front, in a way the last couple of years and this year are bit unusual in that. We have quite a bit of activity with the number of OEM on CT side. Now that's specific to China but then our normal R&D pipeline of projects with for other modalities, for other products like digital detectors, connect and control, those are in line with our normal historical activity. So basically in addition to our normal historical activity, we've got this bubble of projects that we're working on for some of the Chinese OEMs in CT. And those projects have gotten into a phase where we're beginning to ship a lot of prototypes. There's a lot of tubes that are being used for life testing and for other test purposes. So that's why there's an increase in R&D on the product development side and it is not typical. Now what normally would have happened is we would have restricted that amount of effort to our budget for the year and there would have been sort of a governor for that and which there is. But typically we do two things, we build these new products with our OEMs and we continue to sustain and fund longer term projects which are less product oriented and more platform oriented. So we might invest some money in developing new glass for some future detectors or some new types of faster performing in application specific chips. When we - when the product side of the R&D budget increases, typically we slow down the investments on the other side on the foundational longer term projects, but given the fact that we have again in with the reduced tax rate, we decided not to slow those down, so we're continuing on with our historical R&D. work on products and continue to support efforts in China and at the same time continuing to maintain the pace in our foundational technology work, which will help us in the future. So Anthony that's sort of a little bit more color on why we're spending more money on R&D.

That's helpful. I'll hop back in queue. Thank you.

Alright.

Our next question comes from the line of Larry Solow of CJS Securities. Please proceed with your question.

Great, thanks. Good afternoon.

Hi Larry.

Just a few follow-ups and then - just on the revenue side, could you just give a little more color, you said CT was sort of grew in line with the market, on the detector side, at least on the medical side they were down, so I am just trying to get ballpark of and I guess the CT was sort of mid-single-digits on the up side, but you know probably ballpark of what about detectors specifically they were down and is that a function of just the continued real realignment of schedule deliveries from your customers?

Let me clarify that a little bit. Particularly on the on the medical side, what I talked about was that detectors were in line with the plan. We had a bit of a decline in the radiographic detector space, but we had nice performance with oncology, we had the dental business return back to the normal levels or historical levels that has been added with after that Q1 where it was a little bit on the slow side. And then CT tubes did well compared to a year ago when you're looking at just a single quarter, I'd say then we actually had a nice uptick on the CT tube side probably you know a little bit north of mid-single-digits.

And they grew I think 10% in Q1 right, if I'm not mistaken, are high single, is that right?

I'll get back to you on that one because I don't know that one right now.

They were up I believe in Q1 right. Right, okay. And just on the gross margin, just trying to - obviously your guidance implies a nice improvement in the back half more like you know up to the 39% number. You've been sort of below the target range for a few quarters in a row, is it - you know it sounds like more the same stuff. What gives you sort of the confidence that you can improve that, what steps are sort of been taken to improve it, and more color that would be great?

I think you're spot on that you know the first half of the year we are just a little bit north of 36% and we want to be in the you know 37.5%-38% kind of range is what we'd like to be. But I think just because of that being a half a year at the 36%, I now think that for the full year it's 37.5%. So how do they get there in the second half of the years is the right question. First of all, I would put it into three categories, one is this product mix is always the interesting dynamic that we have in our business. And you know a little bit higher mix of CT tubes in the second half that's a favorable thing for us as well. We have good visibility to the other mix of products that we've got in the funnel or actually orders in-house and identified. And those are a favorable mix for us a little bit favorable mix for us there as well. The second element is volume, so higher volume, you get a little better overhead absorption and a little bit more productivity out of the factory. And so that's probably the other factor that helps us significantly here. And then the last is we've been monitoring very closely our cost of product failure, you know scrap, warranty, rework those kinds of things. And it's actually an area where we've done a good job in the first half and we see more of that continuing in the second half. And so the combination of those three is why we have confidence we can get there.

Okay. And I guess the R&D, I guess you're also assuming a little bit of a step down in the back half of the year?

Probably more of a factor because of the higher revenue you know you keep the R&D at similar level, but revenue numbers it helps if you get there. I would say that you know the timing of some of these prototype costs that Sunny was talking about for CT tubes is some of that is now kind of in our rearview mirror and so I think we got a chance to see a little bit more R&D expense in the second half.

And you also spoke to some accelerated development that just mean - is that throughout the year, that makes the number higher or is it sort of within the year that you know just rotating within the quarters?

I would say that's throughout the year and into next year.

Okay. So R&D net going to higher now you think than what you thought last quarter for the four year?

For fiscal year 2018, I've said it's going to be about 10% and previously...

You said 9%, so 9% to 10%, so that's high end of that range. Okay, you were not able to go up the range but then shift to the higher part of that range.

Exactly.

Okay. Then China a nice new another tried some contracts, so that I guess brings the total that you know this five pending, or five customers 170 million over, whatever three to four years, is that right?

Be just careful there about mixing a little bit of apples and oranges, because the agreements that we signed this quarter for China are multiple products not just CT, okay so I think that's what we've highlighted. So be a little bit cautious how you - don't judge it on.

But they are doing for medical China OEM contracts?

Yes, exactly. All on the medical side.

But there was I guess not any contribution you could speak of this quarter or modest, anything in the beginning state, I don't know, you suppose to have some this year right a little bit of it?

I would just say it is the back end loaded year for the China activity. We've been saying that for a while I mean and so nothing has changed there. So, yes a little bit of deliveries again and some of that is not necessarily even CT specific but you know a good portion of what we sell in China today is not CT tunes but also digital detectors and other diagnostic tubes.

Okay and just the $4 million that should be in the other income, you said that was just some gains on some private investments, is that...?

Yeah, so we have we have a few entities that are joint ventures that we have - and so that's the - first of all I'd say other income has got several factors that go into it. One would be the impact of those joint ventures, the other is FX, so there's a little bit of impact there from revaluation balance sheet. That's pretty minimal. But we have investment and one of the larger ones is an entity name Depix that's all in our financials. And they performed well you know so we had favorable formats from them from both operationally and then also in terms of how they reduce some of their fixed costs. So I think that passed through to us for the accounting process and it rolls down to other income rather than up in the body of the P&L.

Right. So is that - that's actually - it's sort of the gain or loss in equity in a JV as opposed to again on the investment?

Yes, exactly, because we don't consolidate them, we don't have a controlling interest that way.

Got it. But it was a pretty big swing this quarter right because I don't even know, I haven't seen much, I know that Depix the JV and all but I haven't seen it move much. I was just sort of curious if maybe since you're not putting, maybe not you know EPS non-GAAP maybe that should be in there, I don't know, it's sort of...?

Now, this is operational performance by them, so this is not a non-GAAP type of item.

I got it, I got it, just a little lumpy I guess, but okay that's fine. Just lastly you spoke about integration the cost cutting to $5 million on target. The revenue synergy is obviously a much longer term horizon there, but it's a sort of multi-year process, can you just qualitatively talk about how you see opportunities advancing, I imagine you've been talking to other customers now that you've had them for you know over a year and you are still confident in some of your initiatives on the revenue synergies side not this year but over the next you know whatever that two to three years?

Yeah. So you know we have said that we'd expect to see $15 million to $20 million in cost savings by year four. And then on the revenue side, we had said $20 million to $30 million revenues by year four. Obviously the costs are, you start working on day one and start realizing those and which we have been doing. So $5 million was what we had targeted for this year and that's squarely on track. On the revenue side, we did a lot of work to consolidate the product line, to get the sales teams consolidated, all that's going well. And at this point we haven't seen any material. We haven't expected that year one there would be much in revenue synergies, but we're still you know we feel bullish about hitting our goal of $20 to $30 million revenues by year four as a run rate. So we're on track for that. The customer activity that's there on the new products that we're introducing give us that confidence.

Okay, great, excellent, thanks guys, I appreciate it.

Our next question comes from the line of Frank Faiella of Sidoti & Company. Please proceed with your question.

Hey guys. I kind of have a higher level question. On your maybe your M&A strategy, I know the focus right now maybe looks like to pay down some debt, but I was wondering if you look at acquisitions as something that can maybe widen the product portfolio or maybe get you some vertical integration or how you kind of look at those opportunities?

Hey Francisco, this is Sunny. You know we have been active with M&A for the past several years, as you know during - even when we were part of very end of acquired companies. And the PerkinElmer acquisition is now lapping it's one year anniversary and we've done a good job of integration. We intend to continue to be active in this space and we continuously evaluate M&A opportunities. And what we've said is that our priority is to look for consolidation. There's parts of our business where consolidation is has there some potential and like the PerkinElmer acquisition was one of them. And the second thread of our M&A is looking at the new product lines that we're going to add to our portfolio. I'll summarize by saying look we're constantly actively participating and screening the companies that we know looking for these kind of opportunities and we will continue to do that. And at this point with our good strong cash flows, we're paying down the debt. When we have an opportunity to do some M&A will apply that cash towards that. You know Clarence would like us to get down to having three times lower than three times.

Three times now so get down to two and a half, but we won't put the M&D. If there's a good deal to be done, we'll do it and we'll fund it.

Sounds good, I appreciate. And then just had another quick one. I know it's not your strategy, but I was wondering if there's anything ongoing in terms of outsourced manufacturing for that you guys do for some of the OEMs or is that totally off the table.

You know so, we're not an outsourced manufacturer in terms of our core business, we develop and design products then we manufacture for the OEM. So essentially the IP is ours, it's our product, it's our design and we then manufacture it. Historically, we had one deal where we were contract manufacturer and it was just a situational thing but that is not our core model. Our model is, it's our IP and we get engineered in and then that's how we stay engineered in for a long period of time.

Thanks, I appreciate. That's all for me.

Thanks Frank.

[Operator Instructions] We have a follow-up question from the line of Anthony Petrone of Jefferies. Please proceed with your follow-up.

Hey, just a quick follow-up on, maybe that is the top line in terms of the outlook and sort of the lumpiness. Is the company looking at any alternative contracting models with OEMs where you know perhaps the visibility can be improved because it sounds like in the past it tends to be whether it's backend loaded purchasing from OEMs or just sort of reactive supply to the OEMs needs which kind of lead to you know some of the lumpiness, so is there an attempt to sort of smooth that out you know and if so, how long you think that will take? And then I have just one follow-up, thanks.

Look Anthony, this is Sunny. I will crack in the maybe Clarence can chime in. You know so our lumpiness is in two areas, first of all in the security business where it's tender driven, there's just natural lumpiness without a cycle that we can forecast too well. But that said we get visibility to deals and tenders that are out there and so lumpiness is around the timing of the tenders and when the shipments going occur. There we don't have much by way of a choice of trying to figure out how to smooth that out. But what we've been doing in the security segment is we've been very active in selling our ongoing services. So that revenues in the security business comes from shipment of Linux and our products as well as from maintenance contracts and services. The bigger that services base gets the more I'd say the revenue starts to smooth out and that's the approach we're taking. On our other products, the tubes and detectors, the lumpiness is usually the short term, it's from month-to-month quarter-to-quarter, but within the year, we've got fairly good line of sight to what each of our customers are going to take. We have - we do continuously work with our customers to try to smooth out and flatten out. This lumpiness we try to get them to give us a level loaded forecast and take products in a level loaded way. And that's the path we're taking. Now we've also told our customers and put it out there for them saying look if you do change your business model to any other type of per whatever, per pickup unit of measure, if you pick that kind of model and you go down that path, we would be willing to work with them back to back to back support them on that type of a model. Unfortunately, we don't sell directly to the hospital, so we're kind of rely on our OEM to take the lead. And that market hasn't gone there, this is still a capital equipment market and people buy based on their budgets. But we're open to that and if our OEMs want to go there, we will absolutely go there with them.

And we probably do continue to push them to see if they're willing to look at a different business model.

No, it's helpful. And then maybe just the last one real quick would be on you know sort of your top five, top ten customers, obviously Toshiba is in there, I think the renewed Toshiba contract is still relatively young. But is there anything you know sort of large in there that's coming up for renewal in the next year or so? Thanks again.

So, first of all, we're now calling up Canon because they went through a name change and so we keep correcting ourselves as we do this. But yes, the Canon agreement was done a little over a year ago and so I think that's - and it was a three year agreement. The other, the next largest customer is GE and I believe that agreement is still got another couple years or so to go on it. So I mean it's not one of those as well that is going to be up for immediate renewal, beyond that I'm not aware of any large customer that would be immediately up for renewal.

Okay, thanks.

Sure.

Our next question comes from the line of Robert Hellauer of Casey Capital. Please proceed with your question.

Hi, thanks for taking my question. My first question is follow-up on China. Forgive me if I misunderstood, but it sounded like you said you signed the contract when they have a prototype and it goes into trial. So can you kind of give a timeline in terms of the length that takes to go from trial for commercialization within China?

Yeah. Hey, this is Sunny. So let me address that. You know our customers - when we sign purchase agreements or pricing agreements with our customers, we typically ask them for volume forecast, so they've got to give us what they're going to do, what their projections are for year one, year two, year three and based on that our pricing is typically tied to volumes and we base our business plan on that. So there's usually before the project they have some kind of a business plan and then how do they get closer to completion of the project. They refine their projections and then we give them pricing based on that. So that's why you know if it takes three to five years to, look three years to bring a product to market, it's usually in the thirty year when they apply for registrations and their internal FDA approvals, that's when typically the conversation moves towards, okay, let's sign a contract, let's sign a supply agreement because those approvals can come in any time and we have to start ramping up the supply chain. It takes about a year for most of our customers to get their registrations in China. FDA approvals might be faster but the process generally takes about a year and then they typically launch their products. So that's why - first of all the contracts that we signed in latter part of last year, we said you know we expect to start seeing revenues coming out towards the second half of this year. There was an anticipation that they would get their registration sometime around this time frame or next quarter or the quarter after and we would start to see the traction. So the customers that are filing for registration now and are signing for pricing agreements with us, we will see revenues from them next year. So it's usually about a 12 month type or time frame.

Great, that's very helpful, thank you. And in terms of - just a quick follow-up on China. Do you have any sense in terms of how much - as you ship this into China, how much an incremental to the market versus potentially maybe your new Chinese customers going in and taking market share from another western OEM that you might supplied already? Thank you.

Yeah So I think at this time, the Chinese market is like a typical emerging market where majority of the volume is net new. So that said entirely with - so China - deployment of CTs is growing, so markets growing and the Chinese people that are in that market are all going after all the net new sale. That's said there's also market share movement between them between the global players and the local players, but it is net new volume. I mean the number of CT sold this year in 2017 is going to be higher than last year and then the year before and the year before. So there's a sequential growth in the sales in China and we haven't seen - we're not anticipating up plateau of that in the next few years.

Perfect, thanks. And just a few quick modeling questions. You know I noted that the restructuring costs for the quarter went up sequentially from about 400,000 to 2 million. I know in the last quarter you highlighted you are trying to invest in R&D and SG&A for future growth like such as like some of the things that you mentioned, how come - I'm just trying to bridge the gap between investing in R&D and the restructuring cost, can you give a little more detail around that? Thanks.

Sure. So no surprise that as you do an acquisition, you look at your global footprint and you look at where you want to be located and where you want activities be done. And so we made a choice to do a little bit of consolidation and that's the majority of that restructuring charges. I call that integration and restructuring, so there's a combination of ongoing integration cost which is like IT systems and like that type of work, but there's also this quarter a restructuring charge as well.

Okay. And then just my last question is on organic revenue. If I look back at your prior year - fiscal year Q3 last year, I think that was the first quarter with PerkinElmer, organic revenue might have been slightly down on a year-or-year basis from fiscal year 2016. So when I think about fiscal year your next quarter what your guidance implies, how should I think about what the two year comp stock in terms of organic revenue? Thank you very much.

Yeah, I'll take a shot of that. I want to clarify first of all that because the acquisition closed at the beginning of May, our Q3 of a year ago only had two months of the PerkinElmer business, the acquired imaging business in our numbers. So and it was I think $27 million dollars. And so it's a little bit of - you got to be careful about apples and oranges there when you're doing a comparison. And then maybe the other point of reference which I mentioned in the prepared remarks was that you know Q2 of last year for them prior to us being acquiring them, they had $36 million of revenue. I believe that their Q3 was something of a similar size, so that's ultimately what we'll be comparing with. So I don't know that fully answered the question but I gave you a little more color on the historical numbers I guess.

Okay, great, thank you very much.

Sure.

Our next follow-up question comes from the line of Larry Solow of CJS Securities. Please proceed with your follow-up.

Great, thanks. Just a follow-up on Rob's question. Obvious it's a very back and loaded year. How should we think of sort of the cadence in Q3 and Q4, it does sound like you know on the gross margin on the cost side a little bit at least as a percentage of revenues they are going to come down for the whole half, but is it going to be even more back and loaded towards Q4 similar to how last year was you know just trying to help avoid any unnecessary surprises because I remember last year there was a big drop in Q3 which it seemed like you guys were sort of expecting and then as turned Q4 rebounded. How should we view that and I guess similar the combo lease obviously year-over-year is much easier in Q3 on a relative basis? Thanks.

Yeah, I'll - without giving specific numbers out of my forecast right now, I'll tell you just - I would say that Q4 is going to be larger than Q3, I mean and I say that Q3 is you know going to be you know - it's not going to be a surprise low quarter, I mean maybe that's the way to put it because it's not - we had a good quarter this quarter and that would be Q3 would be comparable to that or you know somewhere a little bit north of that.

Got it. That's helpful. Thanks.

Okay.

There are no further questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks.

Thank you for your questions and for participating in our earnings conference call for the second quarter of fiscal year 2018. A replay of this conference will be available from May 3rd through May 17th and could be accessed at our website or by calling 1877-660-6853 from anywhere in the United States or 1201-612-7415 from non-U.S. locations. A passcode is required and that number is 13678618. Thank you very much and good bye.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful rest of your day.